Rabbit spleen cells, cultured in vitro, undergo differentiation into IgM-producing cells in the absence of antigenic stimulation. Addition of lipopolysaccharide (LPS) results in a several-fold enhancement of DNA synthesis as well as a several-fold enhancement in induction of immunoglobulin production. Previous reports by others concerned with the mechanism of action of LPS favored either B or T cells as the target site for LPS. The present results account for this controversy by demonstrating that B-cells are the direct target for the mitogenic activity of LPS, presumably resulting in cell proliferation, and T-cells are required to stimulate some B-cell differentiation event. A selective anti-mitogenic component of normal serum which also suppresses the induction of immunoglobulin production has been purified and partially characterized. The inhibitor is specific for B cells rather than T cells or adherent cells, e.g. macrophages, and the data indicate that the inhibition of DNA synthesis and suppression of immunoglobulin production are related. Moreover, the serum inhibitor (anti-mitogen) and LPS (mitogen) somehow compete as regards their opposite effects on the induction of immunoglobulin production. It is suggested that the serum inhibitor functions as a homeostatic control in vivo.